CTC is the abbreviation used for the term ‘Cost to Company’. Every employee has come across the term CTC whenever they have negotiated for a job offer. It is also a common term used by HRs when referring to the salary of an employee. However, why do they refer to salary as CTC instead of simply ‘salary’?
Let us understand the concept of ‘CTC meaning’ and how it is different from salary.
What is CTC / Cost to Company?
Cost to Company (CTC) refers to the cost incurred by the company in a year for employing a staff member in the organization. Since it takes into consideration all the additional benefits that an employee in a company receives apart from their salary, it’s different from ‘Gross Salary’.
CTC = Gross Salary + Direct Benefits + Indirect Benefits + Savings Contributions + Deductions
The terms ‘Take-home Salary’ or ‘Net Salary’ or ‘In-hand Salary’ all refer to the same concept: It is the amount of cash provided to the employee at the end of each pay cycle for their usage after all statutory deductions are completed.
Since the or take-home pay or net salary is the final amount that the employee receives, it’s the usable money that they can utilize for their expenses. Hence, understanding the bifurcation of the CTC is also important while negotiating an offer during the recruitment process.
The ‘Gross Salary’ is the total amount of remuneration given to an employee as salary. It includes their basic salary, house rent allowance as well as other allowances.
An important aspect to consider about gross salary is that there would be no deductions from it. The statutory deductions occur with the CTC as is evident from the formula above.
These are the benefits which are provided to the employee directly, with the salary. Some of the most common examples of direct benefits include house rent allowance (HRA), medical allowance, dearness allowance (DA), leave travel allowance, phone bill allowance, incentives, commissions, bonuses, etc.
These are the perks that benefit the employee indirectly. Some of the most common ones include zero-interest loans, meal coupons like Sodexo, accommodation, life insurance premium, IT savings, etc.
The ‘Savings Contributions’ refer to the multiple perks offered as savings for the employee such as Employee Provident Fund (EPF), Public Provident Fund (PPF), gratuity, etc.
The ‘Deductions’ refer to the statutory deductions which are mandated by the government. In India, income tax is levied on salaried employees who earn over ₹2.5 lakh per annum.
The percentage of income tax levied is dependent on the slabs set by the government from time to time and other deductions and the take-home pay is affected due to these changes.
What is the distinction between CTC, Gross Salary and Net Salary?
All of these terms such as CTC, direct benefits, indirect benefits, net salary, gross salary, etc. are bound to create confusion. Since we have already discussed the different terms related to CTC, one should also discuss the difference between CTC and gross salary, take-home salary, etc.
The gross salary is basically the sum of basic salary and other allowances.
On the other hand, It can also be said to be the sum of the net amount paid by the employer and the deductions.
Meanwhile, Cost to Company (CTC) would be the overall monetary and non-monetary amount spent by the company on an employee and hence, it’s the sum of in-hand salary as well as all other benefits, savings contributions and deductions.